December 03, 2009
Where we have been, where we are now, and where we are going!
Hello and welcome to ETF Technical Trader! I thought November was the month that the markets will top and turn. I may be both, correct and wrong. The DOW and S&P 500 have made higher highs; however, the broader markets have not made new highs.
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So far, DIA and SPY have made higher highs, but QQQQ and other broad index funds have not. This is a non-confirmation that has held up for several weeks. This is not a good sign if you are expecting the indexes to move higher from the present levels.
It has been unbelievable at how Gold has moved straight up in a short period. I really missed that one, but it is so hard to recommend buying when it gaps up on the opens. The opposite of Gold is Oil. Oil has not moved to higher highs. Is this a divergence? Some will say yes and others will say no. I have a feeling Gold will fall hard if the U.S. Dollar makes a statement with higher highs and lows.
So, what has happened in November? I made buy recommendations at the end of October for TWM and TZA. The price has not triggered a sell yet. I actually expect these trades to turn a good profit. It is just taking a little longer than I thought.
I made several new buy recommendations in November. I made buy recommendations in MZZ, QID, FAZ, SKF, DUG, and SCO. The only blemish for November is the 2.07% loss in TBT.
I will not discuss my analysis of each fund. I will cover only one fund in each category for you to get the main point in direction and potential move for the sector with that one fund. I will use SPY for the analysis of the entire Index Funds. I will use XLF and TLT to cover the Financial Funds. I will use DUG for the Oil funds. I will use GLL and ZSL for the Gold and Silver Funds respectively. So, let’s get started!
What is significant is the candlestick pattern for the Index Funds as I write this e-zine. Every single Index Fund I follow painted an engulfment candlestick today whether it was a bull fund or bear fund. Could this be the top in the major indexes? It could, with the lack of participation in the move to higher highs.
Today SPY opened higher and traded to a higher high after that. However, by the end of the day, It closed down hard forming the bearish engulfment. It also formed a key reversal day with the higher high and a close below the low of the last two days.
There has also been a divergence with the MACD indicator. This is an indication of weakness and should be a warning, so you can watch it closely to catch the reversal. With today’s action, that reversal may be at hand.
I would like to see an Elliott Wave 5-wave count down to confirm a change in trend. Keep up to date by following my Blog. I will post there if there are any changes in my recommendation.
XLF topped on 10/14/09 and it has traced out a five-wave decline to the 11/2/09 low. Since then has been nothing but a corrective pattern, which I believe is not complete until today, as I write this e-zine.
The high of 11/11/09 completed wave-A. The overlapping nature of the pattern to the 11/27/09 low, completed wave-B. The rise since then has taken on a three-wave pattern up. As I write this e-zine, XLF has made that required one more push higher to complete wave-C. This should complete the corrective pattern. I have labeled the chart with my counts. I expect new lows ahead.
What is so significant about today’s action is not just that the price action completed wave-C, but the candlestick pattern. It opened higher and traded higher after that, but crashed in the afternoon to cause a bearish engulfment and a key reversal day.
A break below the wave-B low of 11/27/09 will signal that the correction is over and the price is heading for new lows. I expect that the price will not stop or slow down until it reaches the 11.00 level.
One could be aggressive and short this fund now with todays high as the stop loss. A more conservative approach is to wait for a break below the wave-B low on 11/27/09 with today’s high as the stop loss. You may want to consider taking a position in SKF or FAZ, which are short ETFs for the financial sector.
What makes this fund seem to be so weak over the last week or so? One is that the volume is not there to fuel a price break above resistance. There was even a bullish engulfment pattern on 11/30/09. The volume on that day was up a little, but it was not close to the 50-day average.
The volume broke above the 50-day average the next day with a gap and strong close down. That is not a confirmation of a bullish engulfment candlestick pattern! All of this happened at the 233 EMA.
I can count an Elliott Wave 5 waves down from the 10/2/09 high, although not a pretty or clear pattern. What is clear is the choppy and overlapping nature of the wave pattern since the 11/6/09 low that indicates a corrective pattern. I labeled the corrective pattern as a double zig-zag. The price action surrounding the 233 EMA may indicate that the correction is over and that lower prices are in store in the near future.
A drop below the 55 EMA will confirm the weakness mentioned. A price below the 11/23/09 low will strengthen the case for lower prices. A break below the 11/12/09 low will break the bulls back.
The price has actually dropped below the 11/23/09 low as I am writing this e-zine. A drop below the previous wave-B signals that the correction is over and that the bear move down has started. The top of the correction ended at the 233 EMA and just above the 50% Fibonacci retracement level.
I expect the price to take out the 11/6/09 low in the next week or so. After that, you can expect the next level will the 7/27/09 lows.
Keep an eye on the U.S. Dollar as you watch TLT. If the Dollar rises, expect the interest rates to also rise.
DUG has been in sideways trading pattern for the whole month of November. I had already made a case for an impulsive move up from the 10/21/09 low through the 11/3/09 high in my chart and analysis post in November. We should see a move higher from this sideways pattern soon.
The Fibonacci retracement level of 78.6% has been good support through out November. The price tested it several times, as it tested my patience.
Two barriers must be broken before we can see significant higher prices. One is the trend line connecting the highs from 8/19/09. A break of that line will give a little more confidence for higher prices because it has been stiff resistance for several months now.
The other is the 55 EMA. The 55 EMA has been resistance since July. A break of that resistance will be significant.
A break out above the 11/3/09 high will accomplish all the above barriers. That will signal a change in trend. Once that happens, I will expect the price to reach for the 22 and 24 level.
I totally missed the move up in Gold. GLD would gap up on the open, as I would wait for a little pull back to recommend a buy. However, it would never pull back enough. Then it would gap up on an open again leaving you further behind. I have always recommend that now one should chase a trade, however, hindsight is 20/20 and looking back, maybe I should have recommended chasing it.
What is interesting about GLL is the volume the last couple of weeks. The volume has been increasing considerably. The last two days have been a blow out in volume with today being the greatest. Could this be capitulation? It could, especially with everything else that happened with the overall market. The price made a new low today with all that volume, but it closed up at the close.
If I were a gambler, I would recommend buying GLL now. I do not roll the dice anymore. I want to see confirmation first. I want to see Elliott Wave 5-waves up before I get too excited. Stay tuned!
ZSL could potentially be near a bottom. The volume has been increasing as the price has moved to lower lows. However, the volume is no way close to the kind of volume in GLL.
So far, there are only three waves up from the 12/2/09 low when viewing the 120-minute chart. I need to see five waves up to signal a potential bottom. That may happen tomorrow if it happens at all.
I have made a post in my Blog that the Dubai news over the Thanksgiving Holidays could be a warning shot across the bow for the world markets. I made the comment that that may be a sign that the world economies may not be as strong as people think, or at least what the U.S. Government and financial media thinks. The everyday people on Main Street know better!
We may look back to today from sometime in the future and recognize that today may end up being the top of the correction measured by the DOW and S&P 500. If you are long stocks and certain commodities, you need to be very careful from here.
Just as a reminder, continue to come back to www.etf-technical-analysis.com/ETF-blog.html to view My Blog to keep a close eye on any changes or updates I may make in my analysis. I will blog my updates before I will post the changes to the chart and analysis section for each fund I follow. Therefore, do not get left behind, stay current on my recommendations by checking my blog daily.
Talk to you next month! You can contact me anytime if needed when you have questions concerning my analysis or recommendation. You can go to Contact Us to fill out the required blocks and then post your comments before sending.
Be a smart trader!
Craig Wells